Prime Minister Benjamin Netanyahu has agreed to the Shas party's coalition demand to cut the VAT levy placed on basic foodstuffs to 0 percent, backtracking from his previous objection to the demand, which also received support from non-profits working to fight poverty in Israel.
Shas leader Aryeh Deri met with Netanyahu Thursday afternoon to work out the final coalition agreement between the two, thus clearing the way for Shas to join Netanyahu's new government.
Deri turned the demand into a cornerstone of his post-election negotiations. Deri's Shas is also expected to receive the Economic Ministry, the Religious Service Ministry and two other undisclosed portfolios.
On Wednesday evening United Torah Judaism became the first faction to enter Netanyahu's fourth government after its leaders signed a coalition agreement with the Likud. Less than an hour later, Moshe Kahlon also signed the agreement after the Likud leader agreed to appoint him finance minister.
'One of the OECD's poorest countries'
Israeli welfare organizations urged Netanyahu's new government to drastically reduce the 18 percent VAT levy placed on basic foodstuffs.
"Israel is one of the OECD's poorest countries," said a letter sent on Sunday to Netanyahu and designated finance minister Moshe Kahlon by dozens of welfare groups that provide aid to the country's weaker sectors. "About a quarter of the population lives in poverty, and around one-fifth of the families in Israel suffer from significant nutritional insecurity."
The letter, initiated by Latet executive director Eran Weintraub, argues that the uniform VAT rate of 18 percent adds to the economic gaps in society and places a heavy burden on poor families, particularly due to the fact that they spend a significant portion of their available financial resources on basic goods.
The NGOs claim that in order to reduce poverty, the government must implement a program under which VAT on basic foodstuffs is reduced to 7 percent, in keeping with the OECD average, or scrapped entirely.
The NGOs also remind Netanyahu of his election campaign promise to enact the zero-VAT law proposal with respect to foodstuffs. According to Weintraub: "Israel needs a national program to reduce poverty. The first step could be the fulfillment of Netanyahu's election campaign promise to reduce or drop VAT on basic food items."
The Finance Ministry is gearing up, meanwhile, for Kahlon's imminent arrival and a review of the coalition agreements that are likely to be signed this week. According to senior treasury officials, the agreements will require major budget cuts and increased taxation.
The Finance Ministry is not very pleased, to say the least, with some of the agreements in the works, among them the transfer of funds designed to forward the agendas and interests of the ultra-Orthodox parties, Bayit Yehudi, Yisrael Beiteinu and Kulanu. Treasury officials believe these funds could total more than NIS 3 billion, a sum that would require dipping into other budgets.
Treasury officials are already busy with budget discussion, and according to current assessments, the upcoming state budget will be cut by about NIS 8 billion and also include new taxes to the tune of approximately NIS 3 billion.
Excessively expensive coalition agreements and the implementation of various promises made by designated-minister Kahlon, the officials say, could mean a larger budget cut and even more taxes.